The state scolds Mardi Gras Inc. for goose-stepping over the line.

Mardi Gras Inc. apparently overstepped its bounds when it attempted to force dozens of Soulard bar owners to comply with a sponsorship agreement or face steep monetary fines.

In a letter dated January 16, the Missouri Division of Alcohol and Tobacco Control informed Soulard tavernkeepers of their right under state law to advertise and sell all legal alcohol brands regardless of threats from Mardi Gras Inc., the nonprofit corporation that organizes St. Louis' pre-Lenten festival.

The letter specifically states that "Soulard retailers may sell any alcohol beverage and display any alcoholic beverage signage without reprisals from [Mardi Gras Inc.] or [Mardi Gras Foundation]."

Mardi Gras Foundation is one of two separate nonprofits (the other being Mardi Gras Forever) that raise funds on behalf of Mardi Gras Inc. In October the parent organization, Mardi Gras Inc., angered many bar owners when it sent a letter asking that they adhere to a new sponsorship program  or see their fees to participate in the 2008 Mardi Gras increase tenfold.

This year some twenty corporations will fund roughly half of Mardi Gras Inc.'s $800,000 budget, with Anheuser-Busch and Southern Comfort signed on as two of this year's largest sponsors.

It's those liquor sponsors that bar owners were most likely to offend under the program in which the typical bar pays Mardi Gras Inc. a fee of $1,000 to sell alcohol outdoors during the festival. Had a bar, for example, advertised a non-sponsor such as Miller Lite or Jägermeister, they'd be subject to a $10,000 fee to sell alcohol outdoors during the 2008 Mardi Gras.

Peter Lobdell, supervisor of the state's Alcohol and Tobacco Control, says his agents sat down with Mardi Gras Inc., Mardi Gras Foundation and James Bennett, a St. Louis attorney representing both organizations, on December 28.

During that nearly three-hour meeting, state regulators and Mardi Gras Inc. agreed to nine terms that the nonprofit must follow during the annual festivities, which get under way this month. Those provisions cap the amount of money Mardi Gras Inc. can receive from alcohol manufacturers and designates how that money may be spent.

"This spells out our concerns and resolves them on paper," says Lobdell. "Whether or not Mardi Gras Inc. follows through with the terms is something else. But I think they want to do what is right  what is legal."

Lobdell adds that the agreement between his agency and Mardi Gras Inc. does not conclude a yearlong state and federal investigation into the organization, first reported by the Riverfront Times last year (in the December 13, 2006, feature "Party Nazis.")

"There are some events that happened at last year's festival and may have occurred this year as well that are still under review," says Lobdell, who declines to address specifics of the investigation. "No charges have been filed at this point. The important thing is that they know the rules now. If violations occur in the future, they can't say they didn't know the law."

Tim Lorson, director of Mardi Gras Inc., declined interview requests for this article but did answer questions via e-mail. He disputes that his agency did anything wrong when attempting to enforce its sponsorship program.

"[Alcohol and Tobacco Control] has never determined that Mardi Gras Inc. acted improperly in the past and we would vigorously defend any such claim," writes Lorson. "We are, however, more than happy to work proactively with the regulators to make the event a success. We are committed to following the rules and also want to avoid getting bogged down in any battles about what can sometimes be confusing regulations."

Brian Wahby, director of Mardi Gras Foundation, also declined an interview request for this story, saying he was unaware of the letter Alcohol and Tobacco Control sent two weeks ago.

Bar owners, meanwhile, greeted the liquor agency's mailing with mixed emotions. "I'm glad there seems to be a system of checks and balances," says Nadine Soaib, owner of Nadine's Gin Joint at 12th and Allen streets. Last year Soaib's fees to participate in Mardi Gras increased $600 after she was found to have violated the sponsorship agreement by hanging banners for Captain Morgan Rum.

"At the same time," Soaib continues, "I can see where Mardi Gras Inc. is coming from. They need to protect the value of their sponsorships, or else we'll all have to pay more to host the party."

Denny Hammerstone, owner of the Ninth Street and Russell Boulevard bar that bears his name, sees Alcohol and Tobacco Control's action as a victory but wonders whether Mardi Gras Inc. has further "tricks up its sleeves."

"This resolves the issue of alcohol sponsors, but what about the non-alcohol sponsors?" says Hammerstone. "I know that Pepsi has its own brand of energy drink. Does that mean I'll be fined if I advertise Red Bull? I don't know, because there's been no communication from Mardi Gras Inc."

Mardi Gras Inc. abruptly cut ties with the advertising department of the RFT shortly after the December article was published, despite years of partnering with the paper on sponsorships and promotions.

"Following the December article, we've been advised by a third-party associated with Mardi Gras Inc. that we're completely banned from participating in the event," says RFT publisher Michael J. Wagner.

Lorson denies the allegations. "We don't ban anything," he maintains. "We do, however, have a limited budget for advertising and a volunteer promotions staff with little time. That said, promoting our events in a publication that referred to us as 'Nazis' may not be the best solution for our promotional needs."

Under terms of the agreement forged between Mardi Gras Inc. and Alcohol and Tobacco Control, the nonprofit may accept $1,000 from each industry participant in addition to $400 in banner advertisements and $500 in point-of-sale material per brand.

In addition, any liquor-industry donations to the Mardi Gras Foundation must be spent on expenses such as security, sanitation and fencing  and not transferred to Mardi Gras Inc. In years past the foundation has funded Mardi Gras Inc. with upwards of $75,000 to meet its budget shortfalls.

A final provision allows Alcohol and Tobacco Control full access to the financial records of Mardi Gras Inc. and the Mardi Gras Foundation. In addition to installing some twenty state liquor-control officers to work this year's festival, Lobdell says his agency will have auditors on hand to observe Mardi Gras Inc.'s financial transactions.

"Some of Mardi Gras Inc.'s past actions certainly were questionable," says Lobdell. "We don't want to shut down the event by casting aspersions on the nonprofit corporation that runs the event. At the same time, we need to make sure they comply with the law."